What do the wealthiest individuals invest in?

Since 2016 there have been a number of global events that created – and are still creating – quite a bit of turmoil; not least among investors.

From unrest in the Levant region, trade tensions between the US and China, Brexit, the effects of climate change on the migration of people, and food insecurity, global events have meant that wealth and investment decisions are seeing some interesting trends – particularly when it comes to how some asset classes are performing in comparison with others.

And for that class of movers and shakers in the world who invest in a range of assets in an effort to generate greater wealth, there have been some changes to the breadth of the investment landscape.

Traditionally, stocks, bonds, commodities and property have been common modes of wealth creation, but these assets have exhibited some uncertainty for a number of years now. Despite a period of pronounced peaks and troughs, the world is coming to the end of one of the longest bull markets in modern history – from the bottom of the financial crisis that began in 2008, until the present, according to the Wall Street Journal.

What this ongoing cycle of wide-spread productivity and market favourability means is that there has been an increase in the number of people able to generate wealth.

Knight Frank’s 2019 Wealth Report says that “the global UHNWI (ultra high net worth individuals) population is forecast to rise by 22 per cent over the next five years, meaning an extra 43,000 people will be worth more than $30m by 2023”. And meanwhile, those that already meet a healthy threshold can continue to expect their wealth to increase in the years ahead.

The global wealth shift

According to JLL’s 2019 City Momentum Index, the majority of economic growth taking place globally is concentrated in Asia and Africa, and not in Europe and the Americas. In fact, according to the report, which covers 131 major established and emerging business hubs across the globe, the world’s top 20 most dynamic cities are in India, China, Vietnam, Kenya, Thailand and the Philippines.

In 2018, the world’s most powerful company was not Apple or Google’s parent company Alphabet, but Saudi Aramco. And a handful of the world’s largest companies are concentrated in Asia, such as South Korea’s Samsung, Japan’s Toyota and a number of Chinese owned entities.

Growth spreading on an East-West divide has increased the purchasing power of many, and is also inevitably constraining or stagnating growth in parts of the developed world.

Poignantly, Jaron Lanier, an American philosopher and computer scientist, notes in his latest book, Who Owns the Future?, “If network technology is supposed to be so good for everyone, why has the developed world suffered so much just as the technology has become widespread?”

Western nations have had a long trajectory of industrialisation and innovation that is now sustaining itself, and it is yet to be seen how emerging markets that are booming today will be sustained in the long-term. Nonetheless, globalisation has allowed for many advancements in technology and connectedness in more parts of the world, thus creating hundreds of thousands more people who are purchasing fine art, classic cars, designer goods and property.

With all of this wealth, and a plethora of investment options, it is vital for people to secure their wealth and generate more of it. A number of emerging markets have generally implemented some controls to avoid large amounts of capital flight, but places like Dubai have benefited greatly from the proximity of a number of wealthy individuals with the impetus to protect their capital from their respective governments.

China has been one such country that has implemented capital controls in recent years in order to avoid further depreciation of the Yuan. On the opposite end of the spectrum is India where there has been a 144 per cent increase in outbound remittances.

The appeal of prime property

When it comes to different asset classes, certain commodities can often outperform other more traditional classes such as equities or fixed incomes. Fine art, gold and cars, for instance, are typically harbours for when the markets are in a bearish cycle. Another asset class that is often looked at when markets are tough is property. More specifically, prime property.

In 2018, David Godchaux, CEO of Core Savills, noted that prime property in Dubai was 40 per cent less expensive than prime property in Singapore and 50 per cent less expensive than that in Paris and Moscow. Citing 2017 transaction data from the Dubai Land Department, only 3 per cent of transactions that year were for properties in the prime category.

In another article, titled How many square feet could $1 million get you? Dubai vs. the world’s top cities, I highlight that Dubai was one of the top three most affordable cities when it came to prime property.

Despite Dubai’s property prices declining by 20 per cent in 2018, according to data, Property Finder Data & Research has found that demand for prime property has been buoyant. From April 2017 to date, the average transaction price for villas on the Palm Jumeirah is Dhs15,525,000 with an overall decline of 20 per cent in the past two years.

While a 20 per cent decrease is in line with the overall market trend for property in Dubai, transactional volume and sales volume, for prime property in particular, has increased by 44 per cent for the first quarter of 2019 compared to the last quarter of 2018, according to transaction data from the Dubai Land Department.

This trend could be attributed to the government’s recent changes to visa policies whereby an investor who invests at least Dhs10m in real estate could obtain a 10-year residency visa as well as visas for a spouse and children. Residency visas for five years are also an option for those who invest Dhs5m in a property.

Citizen by investment, or CIP’s as they are better known – or ‘golden visas’ in other countries – exist to attract capital from parts of the world that are troubled, or where the movement of capital is otherwise restricted or dampened by the state. Examples include China, Vietnam and parts of the Middle East. The schemes help to generate revenue for the state, while granting a safe haven or travel access to those who need it.

It is important to note that there are two sides to this coin. As capital from large parts of the East flows into Dubai property, there is quite a bit of capital from the GCC region going out. According to Knight Frank Wealth Intelligence, in 2019, a total of $6.2bn was invested in property, located in London ($3.3bn), UK regional ($1bn), Europe ($1.3bn) and the US ($600m). Leading the pack were UAE investors with $2.8bn. While that is not to say that some of the same investors are not investing locally, as many are, the ongoing generation and protection of wealth requires multiple facets.

As the US Federal Reserve Board has indicated staving off any further hikes in interest rates in 2019, and even signaled toward lowering rates, inflation of the US dollar will decrease. As about a third of investors are looking at property as one of their main vehicles for investment this year and with the purchasing power of the US Dollar increasing, many markets around the world can expect investments in property to swell.